Not Many Are Piling Into Passus S.A. (WSE:PAS) Stock Yet As It Plummets 33%

Passus S.A. (WSE:PAS) shares have had a horrible month, losing 33% after a relatively good period beforehand. Indeed, the recent drop has reduced its annual gain to a relatively sedate 5.7% over the last twelve months.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Passus' P/S ratio of 0.6x, since the median price-to-sales (or "P/S") ratio for the IT industry in Poland is also close to 0.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Passus

What Does Passus' P/S Mean For Shareholders?

Revenue has risen at a steady rate over the last year for Passus, which is generally not a bad outcome. One possibility is that the P/S is moderate because investors think this good revenue growth might only be parallel to the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Passus' earnings, revenue and cash flow.

How Is Passus' Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Passus' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 6.3% gain to the company's revenues. The latest three year period has also seen an excellent 55% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 5.7% shows it's noticeably more attractive.

In light of this, it's curious that Passus' P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

What Does Passus' P/S Mean For Investors?

Passus' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

To our surprise, Passus revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

Before you take the next step, you should know about the 3 warning signs for Passus (1 shouldn't be ignored!) that we have uncovered.

If you're unsure about the strength of Passus' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com